The Ethical Supply Chain
The growing importance of ethical solutions and a transparent supply chain.
With over 30 years’ experience in the procurement market, David Capperauld co-founded SP Sourcing nine years ago. SP Sourcing’s aim is to help companies improve the performance, efficiency and sustainability of their supply chain, without compromising on their ethical responsibility.
We caught up with David to discuss the growing importance of ethical solutions and a transparent supply chain.
Given the push for savings from procurement, how can CPOs balance that need alongside the need to deliver ethical solutions?
“People often say they can’t afford to change, but there is a counter argument that says you can’t afford not to. It’s about balancing out the difference between cost reduction and value creation in any business.
At SP Sourcing we’ve been CPOs and VPs: we understand the need to create savings. But there is a strong link between shareholder value and doing the right thing, and we have many examples of having created significant shareholder value through building a responsible and ethical supply chain.
Being transparent in your supply chain can open up numerous significant opportunities to improve. We have examples of this where we’ve been working with large retail organisations, who design their product and work with factories to manufacture their designs. Like many organisations, they are concerned that they can’t afford to fund transparency programmes.
Typically, our outcomes after visiting these factories are to address pay rates and conditions, but we also identify in many cases fundamental process inefficiencies, for example that the conversion rate from design to manufactured product can be around as low as 10%. For every 100 designs sent to the factory, only 10 would see it through to production.
We conducted significant work with both factories and design teams to understand their methods, and identified that low conversion rate generally came from the designers or product developers not understanding how the products were manufactured. Once designers were more informed and adjusted their design process accordingly, the conversion rate increased by 2 to 300%. In a year this has saved one customer over £600,000, whilst still increasing wages in the factory and improving their working conditions. By being completely transparent, the whole supply chain became more efficient end to end. This is only one example of how you can support a positive change in buying behaviours and create cost and price predictability for the customer, whilst also creating a supply chain that, at a minimum, complies to legal requirements.
It’s too easy to focus on getting suppliers down on price, but this type of procurement practise drives poor and often illegal behaviour in the supply chain, as corners are cut and lower purchase prices are found, often at the mistreatment of others. By being transparent, you have the opportunity to improve your supply chain without exploiting others in the process.”
What is your biggest challenge when working with a new organisation?
“One of the biggest challenges is instilling desired behaviours and practices within a company to change the culture. This challenge normally manifests itself in three ways: we can’t afford it, we don’t have the capability and we don’t actually understand it. The call for change is often driven by one person’s desire, and the risk is that if they leave the company then all that hard work is lost. The question then becomes: how do you embed this cultural change into the organisation?
Working with a recent client, we found that when the team members realised the changes they were making were doing good somewhere, there was a shift in energy. If you find child labour in your supply chain and do something positive about it, when you feed back the impact to your team they feel a sense of pride. This creates great positivity, which in turn creates an increase in energy levels, interest and idea generation.
By implementing a new way of working and sense of collaboration, it significantly contributed to increasing their revenue by over £40m in one year. When other organisations heard their story they wanted to connect with them: businesses want to know they can sleep at night confident their supply chain is transparent and risks are being mitigated.”
What are the biggest risks to organisations in not having a clear policy and strategy around ethical supplier engagement?
“We often ask people ‘When did you stop caring?’, but sometimes it’s the legal requirements that almost force people to do the right thing. We collaborate closely with a number of contributors behind the modern slavery legislation that’s been introduced in the UK. These requirements are getting tighter and it won’t be long before organisations will be taken to task if they don’t address it and look deep into their supply chain.
Then there’s the new generation coming through, who care a great deal about ethical responsibility. It’s a much bigger decision-making point for them than it was for anyone when I was growing up. The businesses that attract the best workforce will be those seen to be doing good things, or who are open to employing people to help them change the way they work. The companies seen as innovators will be the first to benefit. It may not happen today but it will come over the next few years. And that’s not to mention their impact as consumers which is even greater.
Organisations need to be honest. Many companies are doing brilliant things to be more responsible, but it’s a complex issue and it’s difficult to manage multiple supply chains. Unless you have people in-situ every single minute, it’s almost impossible to see if production is being taken to unauthorised factories or sweatshops that exploit their workers.
There’s also an obligation for the media to be more understanding and to temper their sensationalism. All it needs is one headline and your share value goes down, and of course businesses are frightened of this. We require more and more businesses to be working towards transparency and responsibility. Adverse publicity can at times drive poor behaviour underground, and create protection strategies and the fear of bad publicity rather than encourage openness and trust.”
What impact could the recent political decisions made by the UK around Brexit have on supply chains and does this have any implications for ethics?
“That’s a really difficult question! If you change anything there will be an effect; there are areas like exchange rates that will put additional pressure on businesses, who may then look at buying cheaper, or moving production to lower cost geographies. This can create a challenge for those businesses to commit to long term improvement in supply chains, with the added financial and economic pressures.
The UK government has been really positive individually, outside of Europe. I’ve recently attended a briefing on funding to look at innovative ways to address modern slavery and child labour. From a UK perspective post Brexit, the funding may get smaller, we just don’t know, but they are still moving forward towards those same objectives.
Whatever the government structure is, organisations can and will feel the pressure of funding constraints. But when things change, it must drive innovation and creativity, and this should encourage collaboration, because ultimately we’re all in it together. Change can give people the drive to make things better, and find the money to make it work. Whatever your politics are, anything that gets people to sit down and come up with new ideas is a good thing.”
David Capperauld is co-founder of SP Sourcing, providing ethical leadership and innovation in global sourcing to create consistent, sustained value for all stakeholders in the supply chain.